Zachary Scheidt

Still Substantial Risk in Credit Card Investments

Zaidane, yes I actually did cover - I owned short-term puts and had to get out of them before their time value depreciated...

But at the same time, I still think the thesis is valid and am looking for the proper timing to get back involved.

The difficult in trading large macro-type assumptions is timing. As they say, the market can stay irrational longer than you can stay solvent... So you have to pick your spots wisely.

Best,
Zach
zachstocks.com

Still Substantial Risk in Credit Card Investments

Zaidane - These are two of my short picks. If you head to my blog you will see quite a few long ideas as well. I've never found it helpful to trade explicitly from the short (or the long) side but instead look for opportunities both ways. That reduces volatility and allows you as a trader to be more flexible.

Taperx - I think the basic discussion between you and me can be summed up in this: V and MC are in the process of gaining a bigger slice (plastic) of a shrinking pie (spending - domestically and abroad). We probably both agree on this. Now the question is whether the driving force is the shrinking pie (my take) or the expanding share (your take). There are no absolute certainties on either side, but the discussion is important and beneficial even if we don't resolve our disagreement.

Best to both of you,
Zach
zachstocks.com

Still Substantial Risk in Credit Card Investments

Sure, that makes sense. Although many popular consumer names are already beaten down. I've been vocal about my aversion to:

Capella and other education names: zachstocks.com/2008/12.../

VMWare: zachstocks.com/2008/12.../

Blue Nile: zachstocks.com/2008/12.../

Las Vegas Sands: zachstocks.com/2008/08.../

among others. There are plenty of names to be wary of as you say. Good luck with RIMM and TIF and thanks for the dialog

Zach
zachstocks.com

Still Substantial Risk in Credit Card Investments

Kewgardens - I chose Visa because it has a bit of a higher multiple, although the pattern on MA may be a bit more attractive as a short. I'm not real comfortable with a pairs trade here - I think both are vulnerable and largely indifferent between the two.

Echo - I understand the bullish argument here. I just don't agree with it. Debit card revenues may help keep both companies from totally imploding, but I don't believe the transition will fulfill future growth expectations.

Taperx - The International growth does bear mentioning. But the recession is global in nature and former expectations for huge international expansion have been toned down.

374347 - Inclusion in an index may have a short-term effect on a stock but eventually prices will be determined by fundamentals. I have found it very difficult to make money by trading ahead of expected index changes

Finally, Rohan - This is the primary bullish argument for these stocks... "They have no credit risk." You are absolutely correct. I'm not basing any short bias on the fear of default. But as BANKS experience defaults, they will issue fewer cards and constrict open lines of credit. This will certainly cause decreases in credit card purchases. As far as debit cards go, if people don't have the money to spend on credit, why do we expect them to have cash to spend out of bank accounts (using debit cards)? I think the issue is much more contraction of consumer spending and much less of an argument of HOW that spending is transacted.

Thanks everyone for the insightful comments!
Zach
zachstocks.com